Top Real Estate Players Accused of Artificially Inflating a Bubble: Calculated Price Differences

The bubble is only seen in sleeping areas

In the center of the capital #Tower Saulius Kulvietis, director of Irec Baltic, the company that developed the apartments, speaking Delphi He says about property prices that in Vilnius’ bedroom districts they are too high and in the center, too low.

“In my personal opinion, based on a vision of what is happening in Europe, in the Old Town, real estate will soon cost 8 to 10,000 in two years. euros per square kilometer. m, in Europe it currently costs up to 17 thousand. euros. “Our ‘golden’ places will be fabulously expensive and still expensive, and all residential areas have nowhere to grow and will never grow again,” he says.

According to the interlocutor, in the Vilnius bedrooms, the real estate price bubble is artificially inflated by the large market players, who benefit from it.

“It hurts when we have (#Tower – Delphi) square meters meter with everything – high heights, expensive systems – cost 2.5 or 3 thousand. Eur, and it costs 2.9 thousand for something. EUR or 3,2 thousand. Eur without half things: the height of the facilities, various engineering solutions. I believe that the customer does not always understand what he is buying or is not always given real information.

The price bubble is inflated in large bedroom areas, auctions are taking place. However, there is definitely no bubble in expensive places, the price of expensive places has not yet risen as much as it should, because the land itself is becoming more expensive, ”explains S. Kulvietis.

Bubble – artificially inflated

It also provides calculations: “Land in the construction area of ​​the sleeping area. m can cost up to 250 euros per square meter. Take, for example, 200 euros and construction: 1.1 thousand. Eur, which is the cost of the entire square – 1.3 thousand. EUR. And for how many neighbors do they sell homes in the bedroom area? For 2 thousand. EUR. Consequently, the developer’s profit is 80 percent. I don’t think that could be the case in the market. “

As they say, the cost of real estate in the city center is much higher: “Avda Konstitucijos. buy 1 km2. m of land costs around 600-800 Eur per km2. meter. Build #Towerį It does not cost 1000 euros, but at today’s prices, around 2.4 thousand. Eur (square meters – Delphi).

Suppose that the minimum cost of the land is 600 euros, construction – about 2 thousand. Eur, and we square M. m we sell for 2800-3200 Eur. Our profitability is 10-15%. How many million do we invest to get 10-15%, and if we invest three times less in a sleeping area, 80%? cost effectiveness. So where is the price bubble here? We put the paper on the table, we write down the cost of one district, another, and we see how much everyone receives ”.

Avulis: prices have risen everywhere

Arvydas Avulis, Hanner’s chairman, disagrees with these considerations. According to him, real estate prices have risen everywhere and people are more sensitive to the prices of houses far from the center.

“We had a lot of statistics about where fewer and fewer houses are sold. Housing in the city center used to be expensive, and now that prices have risen, it has become very expensive. Basic example: previously for 2 thousand. Eur per meter square m it was possible to buy a home in the city center or near the center. Now prices have risen so much that in the central part of the city they start from 2.5 Eur and can be above 4 thousand Eur kv . meter.

And in areas far from the city center, if the prices were up to 2 thousand. Eur, now they have reached 2 thousand. Eur and maybe a little more. What a person could afford to buy in the central part of the city could only be bought in residential areas. Although wages are increasing, but not for everyone and not immediately. Therefore, perhaps those who were going to buy a home closer to the center can now do so far from it ”, comments A. Avulis.

How many benefits do you really get?

In response to criticism of the allegedly inflated prices and high profits, he suggests not looking directly at those calculations, as they contribute to a wide range of other costs.

“It is one thing to include the price of the land, which is now tremendously high, another is the various guarantees that must be given, the complexity of coordinating all kinds of projects and everything else. Taking a calculator can allow you to come up with that amount, but you should always consider how long that project will take to do. How long will it take you to provide quality assurance commitments?

The warranty obligations in Lithuania are the most important in Europe, there is nothing more that can be given than for 5 or even 10 years it is sometimes necessary to repair the built houses. And it should be done for their money, residents will never give their money, if there is any defect or deficiency, they will really insist that it be fixed. Legislation requires leaving 5 percent. elimination of defects and deficiencies. If you do not go into all the details, everything seems very simple and primitive, but take and do that project, you will see how much work there is and how much profit is obtained in the end ”, explains the president of the board. Hanner.

Is there a price bubble?

Some real estate experts believe that price growth is no longer sustainable and there is a bubble in the market, but A. Avulis says it is more of an emotional assessment.

“If there is a price bubble, it usually bursts. It happened in 2008, when prices went up in an absolutely unjustified way, banks lent money and when they stopped lending, things collapsed. Today, the situation is quite different: many people They buy houses not for the bank, but for their own money. This is an incredible phenomenon because deposits in banks have grown so much that people have nowhere to put them. It can be difficult for people with low wages to understand and understand what this is like But that’s the reality of life

Like any price bubble, it was caused by completely different things, it is not about Lithuania, but about the world economy, a lot of money was printed for the economic recovery after the pandemic. When that money hit the market, raw materials became more expensive around the world – wood, metal, polystyrene, many building materials – and caused construction prices to rise, which first scared builders.

They realized – if for construction they would have to pay 10, 20, sometimes even 30 percent. more, then bankrupt, so all cleverly afterwards began to raise prices. “There has been a chain reaction that has caused a global rise in prices, which is taking place throughout Europe and around the world; even in China itself, the rise in metal prices is being fought because everything is being done. crumbling, “he said. saying.

Still, the interlocutor agrees that property prices are rising faster than wages, but that doesn’t always mean a price bubble.

“I think wages will grow just as fast afterward, and only at the end of the year will we be able to compare how much wages have risen and how much: house prices. However, there is not always a bubble if house prices rise faster. than wages, since the trend has been the opposite in recent years, with wages rising by 10% and house prices by 5%.

This sparked a huge backlash, as wages far exceeded house prices, making it so easily affordable that anyone could buy it. The demand was higher than the supply, which also caused an increase in prices, ”says A. Avulis.